California to receive largest cut of mortgage share

SACRAMENTO -- California should receive at least $20.6 billion from a settlement with the nation's major mortgage lenders, the largest share of any state and about $2 billion more than expected when the agreement to assist homeowners was announced last year, according to a report released Thursday.

The money from five banks will help an estimated 175,000 California homeowners struggling with their mortgages.

The national Office of Mortgage Settlement Oversight announced the state-by-state breakdown of the $42 billion national settlement. It covers every state except Oklahoma, which struck its own agreement with the lenders.

"We're going to definitely overshoot what we thought we would get at the national level," said Katherine Porter, a University of California, Irvine, law professor who is overseeing how the settlement is being implemented in the state. "I think that's great news for the state's entire economy."

She predicted the benefit to the state ultimately could reach $22 billion, based on her analysis of the national report.

Nearly 100,000 California borrowers are getting reductions in the amount they owe on their home loans or an outright forgiveness of their loans, at a cost to banks of about $11 billion.

Most of the rest of the money is going to about a third of the borrowers who completed short sales, in which the lender agrees to a sale price lower than what is owed on the property, or to deeds in lieu of foreclosure, in which the lender accepts ownership of the property instead of foreclosing.

Only a fraction is aiding borrowers who are current on their payments but owe more on their mortgage than their house is worth. About 8,300 of those homeowners have been able to refinance their mortgages at a lower rate, saving a total of about $445 million.

The 8,300 is far fewer than the 28,000 underwater homeowners who had been projected to receive assistance when the settlement was announced a year ago, but Porter said many refinancings are still in progress and the number will grow.

The settlement will not help California homeowners who played by the rules and are making monthly payments yet unable to refinance at today's low interest rates because their homes have lost too much value. Even when those homeowners are not underwater on their loans, banks will charge thousands of dollars in refinancing fees or require costly private mortgage insurance if their home has lost too much value.

Porter acknowledged that the emphasis to date has concentrated on more desperate borrowers who were on the verge of losing their homes, although she plans a second report on areas where more work needs to be done.

"It's only a slice of the market, and I think we need to keep growing that slice of pie," she said of the settlement.

Porter said principal reductions on first liens are coming in higher than expected, particularly from the three banks that negotiated agreements with California Attorney General Kamala Harris in addition to participating in the national settlement.

Bank of America Corp., JPMorgan Chase & Co., and Wells Fargo & Co. all had principal reductions several times greater than anticipated. For instance, about 10 percent of Wells Fargo's home loans were in California, but about 60 percent of its relief efforts are benefiting its California borrowers.

That contrasts with Florida, which according to the national report was receiving principal reductions at about the same rate as each bank's exposure in that state. The other banks involved are Citigroup Inc. and Ally Financial Inc.

Bank of America said in a statement responding to the national report that it expects to meet all its financial obligations by the end of March.

In California, Bank of America has provided about $11 billion worth of relief to nearly 92,000 borrowers, the most of any of the five major lenders involved in the settlement. The figures do not include trial mortgage modification programs that still are in progress.

Chase provided the second-most relief to California borrowers. Kevin Watters, the bank's chief executive officer for mortgage banking, said in a statement that the $3.2 billion "has not only helped homeowners, but it has also made a difference in their neighborhoods and communities."

Porter credited California's monitoring of lenders, along with a package of bills approved last year that writes the national settlement into California law and broadens it to include all lenders, not just those who signed the national agreement.

The penalties written into California's settlement and laws also helped, she said.

However, the number of borrowers who have been helped is far fewer than what had been projected in several areas when Harris announced the settlement a year ago.

Banks are exceeding the $12 billion that is dedicated to reducing the amount owed on loans or offering short sales. However, Porter expects the number of those assisted to be far fewer than the estimated 250,000 homeowners who are behind on their payments. That's because the banks are helping fewer borrowers, but providing those borrowers with significantly more relief than had been expected.

That can be beneficial because those borrowers are getting significant assistance, Porter said, enough to ensure that "they're not back in foreclosure again six months from now."